Australia’s mining investment boom could fall away faster than anticipated, but there’s still uncertainty about how non-mining sectors will take over and help to “rebalance” the economy.
In its quarterly statement on monetary policy released on Friday, the Reserve Bank said its forecast for economic growth was based on the expectation that non-mining sectors would fill the gap left by the decline in mining investment.
But, the RBA said, “there remains considerable uncertainty about how this transition will proceed”.
With few new projects in the pipeline, mining investment could drop off faster than anticipated, the RBA said.
“The forecasts of non-mining business investment have a more muted recovery, at least initially, than in past cyclical upturns.”
However, the RBA said further depreciation of the Australian dollar could see a faster pick-up in non-mining investment.
A 10 per cent depreciation of the exchange rate could stimulate growth by half to one-per cent over two years or so, according to the RBA’s estimates.
“Further depreciation of a similar magnitude to that already experienced to date could, for example, deliver above-trend growth sooner than currently forecast.”
The RBA said indicators of demand had been a little soft of late and the outlook for activity lowered, with growth expected to remain below trend for a time.
“The board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the inflation target over time,” the RBA said.
JP Morgan economist Ben Jarman said the statement conveyed disappointment in the lacklustre growth of non-mining sectors and a sense that the hole left by declining mining investment was getting larger.
He said the statement hinted that another rate cut was on the cards.
“There is still scope to ease further, and on the current path of demand, we expect that step to be necessary before year-end,” Mr Jarman said.
CommSec economist Savanth Sebastian said the statement was clearly slanted towards the potential for further cuts, highlighting subdued global growth and a lack of non-mining investment as risks to domestic growth.
“Overall the statement certainly has an air of caution with a particular focus on below-trend near term growth and rising unemployment, and given that inflation is expected to remain towards the low end of the 2-3 per cent target band, it is clear that policymakers will maintain an easing bias when it comes to monetary policy,” he said.
Mr Sebastian said the statement made no mention of the impact the election could have on the economy.
“The white elephant in the room that was not discussed was how the domestic business and household sectors may react after the election is out of the way,” he said.
“More certainty on the political front may inspire an improvement in confidence which has been the missing ingredient.”
